VZCZCXYZ0000
RR RUEHWEB

DE RUEHBU #0159/01 0431403
ZNR UUUUU ZZH
R 121403Z FEB 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 0222
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000159 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
HR/OE FOR SALLY CINTRON 
WHA/EX FOR JIM ROBERTSON, BILL HALEY 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV AMGT AFSN APER AR
SUBJECT: Argentine Official Inflation: Allegations of 
Continued GoA Manipulation and IMF Request for 
"Clarification" 
 
Ref: (A) Buenos Aires 117 
 
     (B) 07 Buenos Aires 2371 
     (C) 07 Buenos Aires 2271 
 
This cable contains sensitive information - not for internet 
distribution. 
 
------- 
Summary 
------- 
 
¶1. (SBU) The GoA is reporting "official" January 2008 inflation at 
0.9%, well below independent measures of monthly inflation in the 2% 
range.  The international financial press is calling this lowball 
release a blow to expectations that the Cristina Fernandez de 
Kirchner (CFK) administration would gradually implement more 
accurate inflation reporting and work to resolve the controversy 
over the management of GoA's national statistics agency INDEC. 
Separately, an INDEC spokesman confirmed that the IMF has asked for 
"clarification" of INDEC's new inflation calculation methodology, 
and local media reports that a January 15 letter from the IMF warned 
Argentina's macroeconomic data may be excluded from its World 
Economic Outlook if those data fail to meet UN standards. 
End Summary. 
 
--------------------------------------------- -------- 
January "Official" Inflation Said Grossly Understated 
--------------------------------------------- -------- 
 
¶2. (SBU) According to GoA National Statistics Bureau INDEC, consumer 
price inflation (CPI) in January 2008 was 0.9% month-on-month (MoM), 
well below consensus market expectations of an "official" rate 
announcement in the 1.2-1.5% and private measures of "true" January 
inflation the 2% range.  The January release left 12-month inflation 
at 8.2%, the lowest level in two years. 
 
¶3. (U) Details of INDEC's January CPI data show that the increase in 
the sub-index tracking the prices of transportation and 
communication, up 1.9% MoM, was the main driver of January 
inflation, contributing 0.28% to the headline figure.  The increase 
in this index reflects a roughly 11% hike in the cost of public 
transportation due to bus, train and subway fare hikes, which 
weights 6.4% in the CPI basket. Meanwhile, according to INDEC, 
January food inflation was 0.7% MoM, (7.3% YoY) accounting for 0.24 
percentage points in the headline figure.  Independent local 
economists charge that this official food inflation significantly 
underestimates "true" January food inflation estimated in the 
3.0-3.5% MoM range.  Finally, independent economists argue that 
INDEC's January data includes distortions in seasonal patterns which 
appear aimed at minimizing headline inflation.  Similar distortions 
have been highlighted by independent economists since January 2007, 
with seasonal increases in official prices often coming out below 
values observed in previous years. 
 
--------------------------------------------- ------ 
IMF Requests Clarification of INDEC CPI Methodology 
--------------------------------------------- ------ 
 
¶4. (SBU) An INDEC spokesman confirmed February 7 that the IMF has 
asked for "clarification" of the new methodology used by INDEC to 
calculate inflation.  According to local media reports (confirmed to 
EconCouns by the IMF's resident#6rd on February 7 comments 
in Washington by IMF spokesman Masood Ahmed that "reliable data on 
key indicators, like inflation, are key to establishing a sound 
political economy, not just in Argentina but in all nations." 
 
------------------------------------------ 
True 2007 Argentine Inflation in 20% Range 
------------------------------------------ 
 
¶5. (SBU) On January 28, INDEC had declared "official" 2007 inflation 
in the greater Buenos Aires area at 8.5%, private economists' CPI 
inflation estimates are broadly in the 20% range (Ref A).  Dissident 
staff of INDEC, citing what they term bald-faced GoA manipulation of 
statistics, announced January 29 that they calculate true 2007 
inflation in the Buenos Aires metropolitan area was higher still, in 
the 22-26% range.  The dissident INDEC staff also noted that 2007 
food inflation was in the 36-39% range, compared to official food 
inflation of only 8.6%. 
 
--------------------------------------------- ---------- 
2008 Inflation, Wage Increases Expected in 18-20% Range 
--------------------------------------------- ---------- 
 
¶6. (SBU) In January reports, JPMorgan and other independent local 
economists projected prices to surge another 18-20% in 2008.  A Di 
Tella University survey on inflationary expectations shows that the 
local population expects inflation to reach 22.6% in 2008; their 
perception of inflation during 2007 was 33%.  Inflation during 2008 
will be seriously affected by wage increases to be negotiated during 
the first quarter.  The magnitude of such an increase will be a key 
factor particularly for inflation expectations.  Interestingly, 
INDEC recently announced that the salary index increased 22.2% 
year-on-year in November, roughly in line with independently 
calculated true inflation levels.  While salaries in the formal 
private labor market rose 20.1% (y-o-y), wages in the informal 
private labor market increased 22.3% y-o-y and public workers' 
salaries jumped almost 28% y-o-y,according to INDEC. 
 
------------------------- 
Comment: A Slippery Slope 
------------------------- 
 
¶7. (SBU) INDEC's inflation figures have come under fire since its 
director was replaced a year ago, with dissident INDEC employees 
claiming that data have been systematically manipulated to arrive at 
an official 2007 inflation rate of 8.5%, less than half the rate 
calculated by private analysts.  The international financial press 
is calling INDEC's lowball official January inflation release a 
significant blow to expectations that the CFK administration would 
gradually resolve the controversy over the management of INDEC and 
implement more accurate inflation reporting. (Prices of GoA 
inflation-linked bonds fell sharply as a consequence, with the yield 
on Argentina's benchmark 25 year inflation-linked bond up 26 basis 
points to 8.3%, the biggest change since November 2007). 
 
¶8. (SBU) The tarnished credibility of INDEC's CPI inflation 
statistics has already called into question the reliability of 
linked GDP growth data (which independent observers argue is likely 
overstated by a low GDP deflator) as well as poverty and indigence 
statistics.  Should the IMF decide to exclude Argentine inflation 
from its World Economic Outlook, the credibility of a broader range 
of GoA macroeconomic data could be called into question. 
 
WAYNE